Will the Justice Department Continue to Use DPAs and NPAs?

With a new administration at the Department of Justice, practitioners and commentators are looking for signs of change. Given the current politics of the new administration, the Justice Department will undergo changes in civil rights, antitrust, and criminal enforcement. These “new” or return to old policy announcements were not surprising since they went hand-in-hand with the campaign promises and expectations with the appointment of Senator Sessions as Attorney General.

One area where possible changes may occur is in white-collar enforcement. Senator Sessions has stated his concerns about DOJ’s use of non-prosecution and deferred prosecution agreements (NPAs and DPAs). Since his arrival at DOJ, however, Sessions has made a general statement of support for NPAs and DPAs as a useful alternative remedy.

The controversy surrounding NPAs and DPAs continue. On the one side are prosecutorial “purists” who believe that a criminal investigation should result in either a prosecution or the closing of an investigation without any action. On the other side are those who advocate for a middle territory where a company, for example, may enter into a DPA, pay a fine, and agree to a number of remedial measures, with the possibility that a criminal prosecution could be revived if the company fails to comply with the terms of the DPA. Similarly, in the case of an NPA, the government refrains from filing a criminal case, but agrees to a fine and a series of remedial steps.

One of the concerns supporting use of DPAs and NPAs is the fear that a criminal prosecution and conviction can cause serious collateral damage to a company that would unfairly punish shareholders and other stakeholders who played no role in the misconduct.

While the controversy continues in the United States, other countries, including the United Kingdom and France, have created similar middle-ground systems for companies to avoid criminal convictions and collateral consequences. Interestingly, the systems in these countries require significant judicial review and approval of such agreements. Canada is wrestling with the same issue in the context of resolving the SNC-Lavlin corruption prosecution.

A recent report, The Shadow Regulatory State At the Crossroads, by James R. Copeland and Rafael A. Mangual from the Manhattan Institute (available Here), questions the growing use of NPAs and DPAs. According to the report, NPAs and DPAs provide government attorneys with unwarranted supervisory powers over a company’s business practices. The authors also contend that DOJ’s growing use of NPAs and DPAs are contrary to effective judicial administration.

In particular, the authors cite the fact that, in 2016, the Justice Department entered into 35 DPAs and NPAs, the largest number of such settlements since 2012 (excluding the years in which tax amnesty agreements were reached in FATCA cases). Also, the authors point out that, for the first time, over one half of the settlements included imposition of corporate monitors.

According to the authors, since 2010,18 of the Fortune 100 companies have entered into DPAs or NPAs. The authors contend that DPAs and NPAs impose significant and burdensome business requirements that are not justified given the nature of the violations underlying criminal investigation. The authors conclude that the United States is an outlier in its reliance on DPAs and NPAs to resolve criminal investigations.

Whether DOJ will reexamine its use of DPAs and NPAs is unclear. I am sure that a number of political appointees to DOJ will be sympathetic to business concerns surrounding DPAs and NPAs. As long as DOJ continues to rely on DPAs and NPAs and imposes corporate monitors in specific cases, DOJ will face continuing scrutiny over its use of this specific settlement tool.